PremierInvestor.net Newsletter Wednesday 07-07-2004 section 1 of 2 Copyright (c) 2004, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= In section one: Market Wrap: Coming and Going Watch List: Brokers, Miners, Oil and more Trading Ideas Value Plays With Bullish Signals Breakout to Upside (Stocks $5 to $20) Breakout to Upside (Stocks over $20) Breakout to Downside (Stocks over $20) Recently Overbought With Bearish Signals (Stocks over $20) =============================================================== MARKET WRAP (view in courier font for table alignment) =============================================================== 07-07-2004 High Low Volume Advance/Decline DJIA 10240.29 + 20.95 10266.61 10199.29 1.61 bln 1704/1086 NASDAQ 1966.08 + 2.65 1976.92 1960.78 1.75 bln 1394/1596 S&P 100 544.25 + 0.92 546.23 542.46 Totals 3098/2682 S&P 500 1118.33 + 2.12 1122.37 1114.92 RUS 2000 572.03 - 0.38 575.84 571.49 DJ TRANS 3150.08 + 33.59 3151.55 3116.45 VIX 15.81 - 0.44 16.47 15.59 VXO 15.75 - 0.42 16.37 14.50 VXN 22.26 + 0.15 22.39 21.89 Total Volume 3,655M Total UpVol 1,975M Total DnVol 1,552M 52wk Highs 153 52wk Lows 156 TRIN 0.92 PUT/CALL 0.99 =============================================================== =========== Market Wrap =========== Coming and Going Jonathan Levinson It was a laborious session that ended with light gains for the Nasdaq, Dow and S&P, but at least the indices didn't break to new lows. Key support levels were tested and held, but the daily picture does not look encouraging for bulls in the short term. The action of the past month has succeeded in whipping both bulls and bears in both directions. Abby Joseph Cohen's bullish call on the markets last week, preceding a precipitous drop by mere hours, was countered today by Morgan Stanley's Rick Bensignor who said that he sees the "most significant selloff" yet to come for the year, based on the technicals. We don't need to take anyone's word for it, however- here are the charts: Weekly Dow Chart The weekly Dow candles are at the root of the ambiguity, with the action off the year high printing either a bull wedge, a neutral pennant or a complex top. That's beyond useless, but it's also the most accurate description of what I see on a pattern basis. On a sentiment basis, we've seen record lows in Nasdaq and Nasdaq-100 volatility, nearly 10-year lows in OEX volatility, and very strong bullish optimism. However, we've also seen very high sustained put-to-call readings. To compound the uncertainty, I defy anyone to give me a definitive read on the weekly oscillators here- are they in downphase or upphase? Once again, the picture is ambiguous. We've seen in recent months that when in doubt, particularly within a range, smart traders don't force trades. Unless you're strongly persuaded against one side of the this market or the other, it's safer to wait for a high volume break of either 10500 to the upside or 9900 to the down, or to play for reversals at those levels with stops just beyond. The rising support line at 10200 narrows that range considerably, providing a higher support level to play. Daily Dow Chart The Dow's daily range managed to touch the upper and lower pennant trendlines at 10266 and 10199. Above that level is stiff resistance from 10320-10350, and given the shape of the daily cycle oscillators in their current bear roll, it's unlikely that we'll see a serious challenge to that upper range without more downside first. Below 10200, next support is at 10100, followed by 10060-80. Weekly Nasdaq Chart The same ambiguity is present on the weekly Nasdaq- bull flag, neutral pennant or complex top- but with the pullback of the past two weeks retesting the pennant apex in what is now a commonplace false pennant breakout. The oscillators are equally uncertain here, and the working range is 1900-2025. Daily Nasdaq Chart The Nasdaq found support today at 1960, failing below the descending daily trendline at a high of 1977. The low came right on what appears to be support on a descending triangle, and any print below 1960 should see a move to the 1935 level. I've highlighted a bearish divergence between the higher price high since early June and the lower 10-day stochastic peak, which portends that a break of that 1960 support could do some downside damage. Putting it all together, we see more weakness in the shorter daily timeframes than in the weekly, and for that reason we can expect uncertain chop as the shorter timeframes seek longer term direction. The first extended move should be determinative, and the move from last week's highs qualifies. I'm not bullish here, but the lack of clarity on the weekly charts is telling me to keep an open mind either way. The Mortgage Bankers Association reported that the Market Index of mortgage loan applications 19.5% to 687 on a seasonally adjusted basis from 575 the previous week. On an unadjusted basis, the index was higher by 19.2 but lower by 34.1% year-over- year. The Refi Index, with refinancings accounting for over 1/3 of all mortgage activity, rose 27.6% from the previous week, while the government index rose 9.7%. The average interest rate for a 30-yr fixed-rate mortgages was down to 5.96% from 6.21% in the previous week. I've attached a weekly chart of 10-yr note yields (TNX). The downtick in rates over the past month should correlate with continuing increases in the level of mortgage activity. If this cycle continues to dominate, mortgage bankers can look forward to several more weeks of increased business. Weekly TNX Chart The International Council of Shopping Centers reported that chain-store sales for the most recent week rose 0.9%, correcting part of the previous week's 1.2% loss. This level is up 4.4% y-o- y, but the ICSC warned that this y-o-y gain has been deteriorating since earlier in June. Caution seems to be the ongoing theme in the retail sector, with WMT warning last week, and continued concerns about the amount of consumer exposure to debt and wage deflation. The Treasury Department auctioned $15 billion in 5-yr notes on at an average yield of 3.663%, generating a bid-to-cover ratio of 2.33. Bonds were slightly higher for the day, with the ten year note yield declining 0.8 basis points to close at 4.472%. The morning opened bleakly with a warning from PSFT about Q2's earnings and revenue, which are now expected at 13-15 cents per share from the previous 21 cents. Revenue is expected between 655M - 665M, down from 689.3M. Despite its morning drop PSFT recovered later in the session to close higher by 1.66% at 17.10. EBAY got whacked on a downgrade of the entire internet sector by Prudential to neutral weight from overweight (does that mean hold or sell?). Prudential noted that EBAY's overall auction listing growth has been slowing. The stock closed lower by 3.31% at 86.87. China internets were also lower on a warning from NTES based on weaker than expected sales from its wireless and other fee-based operations. The entire sector was lower today, with the INX lower throughout the day to close at 188.32. In other news, UAL reported that its load factor reached rose 4% to 86% in June, the highest in its history. Traffic increased almost 17% to 10.6M revenue passenger miles from 9.1 million miles year-over-year. NITE got smoked for more than 5% after warning that Q2 would fall short of expectations, lowering its range to 6-11 cents per share from 15 cents. The broker dealer blamed the miss on low volatility and volume in equity and options, as well as a 79M charge attributable to the settlement of SEC and NASD investigations. CEO Thomas Joyce said that "The trio of rising rates, higher oil prices and an unstable Middle East worked to keep investors, both retail and institutional, on the sidelines." For the day, the XBD fell to a 9 month low, losing 2.04% to close at 120.19. The Department of Energy reported that it expects crude oil prices to remain high through 2005, based on low inventory levels and persistent demand. The DOE said: "The chances for even a gradual, sustained decline in crude oil prices through 2005, as previously projected in this outlook, seem to have diminished. Low world oil surplus capacity levels provide an extremely limited cushion in the event of unexpected world oil market disruptions." Despite these comments, crude oil futures were lower throughout the day on confirmation from Ali-al-Naimi, Saudi Arabia's oil minister, that OPEX would honor its stated intention to up its quota by 500,000 barrels. In the grand scheme of things, that's a minor increase, but increased supply and the consistency from OPEC's earlier announcements coincided with short term overbought conditions after this week's strong runup to generate a 1.44% decline in front-month crude oil futures by the end of the day. Federal Reserve Vice Chairman Roger Ferguson manned the bullhorns in the afternoon, warning investors that the strong gains in US productivity during past two years is unlikely to continue, but that productivity should remain above average as new technologies are deployed. He noted that the economic data indicate a pullback from last year's pace, and that while lower productivity gains could spike employment labor costs and harm profit margins, such threats to inflation are premature. Gold was sharply higher, rocketing in the morning and holding its gains for the session. Bloomberg attributed the gains to concerns over the banking situation in Russia. While there's uncertainty over the extent of the problem, the Canadian Press reported that Russian Central Bank chairman Sergei Ignatyev was reassuring the country that the sector was sound. The state- owned Vneshtorgbank is in negotiations to buy Guta Bank, which bank suspended operations yesterday as clients arrived to find suspension notices covering the doors of their branches. Word was of a liquidity crisis, affecting this and other smaller banks, and the response today was to slash reserve requirements from 7% to 3.5%. Gold rose above 402, making its largest gain in 13 months. After the bell, AA reported net earnings of 46 cents per share, missing estimates by a penny, and income of 404M, up 86% from $217 y-o-y. YHOO reported earnings inline with estimates at 8 cents per share for Q2, more than doubling to 113M from the previous 51M. Sales rose to 609M, missing estimates by 1M. YHOO got smoked following the release, spiking down 14.5% to 28.45 as of this writing. AA was lower as well despite its positive report. DNA reported Q2 revenues of 1.128B, up from 799.7M, earning 19 cents per share and meeting expectations. Net profit was 170M or 16 cents per share, up from 132.3M or 13 cents per share last year. The stock was lower by .29% at 54.50 as of this writing. We await initial claims for the week ending July 02 tomorrow, estimated at 345K and down from 351K in the prior week, as well as consumer credit for May to be released at 3PM, est. 7.5B. Based on the terrible reception of the earnings reports after the bell, the configuration of the daily indicators and Abby J-C's bullish call from last week, I'm bearish here, but keeping an open mind due to the ambiguity of the weekly indicators. If in doubt, exercise patience, and whatever you do, do it with stops. The markets could well gap below today's support at tomorrow's open, and if so shorts can use today's closing prices as a reference for the placement of stops. ================================================================== WATCH LIST ================================================================== The PremierInvestor.net watch list is not designed to be read as full fledged stock picks. Rather we would prefer to offer it as an extra tool in today's investor toolbox. Think of it as a radar screen with your own radar operator pointing out interesting developments, technical patterns or potential plays that you may or may not have seen on your own. Due to time constraints we do glance at the news but rarely do we have time to fully read pertinent news stories, due background research and other necessary screens that investors should do before making a decision. A common exercise is to read the entry, glance at the sector and other stocks in that industry and then compare what's happening in the stock to what's happening in the broader market indices. We hope you enjoy the Watch List and that it proves to be a useful tool for your own trading success. STOCKS WORTH WATCHING --------------------------------- Brokers, Miners, Oil and more A.G.Edwards - AGE - close: 32.61 change: -0.37 WHAT TO WATCH: The entire brokerage sector has been slipping on concerns about higher interest rates and the reality of lower trading volumes. The weak trading volumes we've experienced over the last few weeks directly affect the bottom line. The sell-off in AGE during the last two weeks has been fueled by big volume indicating some serious doubts from investors. The breakdown under $34.00 looks good for the bears and the stock has produced an impressive quintuple-bottom breakdown on its P&F chart that currently points to a $27 target. AGE looks a little oversold here so we'd watch for a bounce and a failed rally in the $33-34 region and then initiate bearish plays. --- Pan American Silver - PAAS - close: 14.48 change: +0.69 WHAT TO WATCH: We strongly considered adding PAAS to the play list tonight. The rebound in the mining stocks and the 4% rally in the XAU gold & silver index over resistance at the 90 level looks pretty good. PAAS broke through resistance at its 200-dma two days ago and broke through resistance at the $14.00 mark today. Volume was above average and shares look poised to run toward the $18-19 region. Unfortunately, there are potential hurdles at the simple 100-dma (15.05) and the $16.00 level. --- Teekay Shipping - TK - close: 38.00 change: +0.90 WHAT TO WATCH: Oil stocks have been drawing a lot of attention as crude oil climbs back toward the $40 per barrel mark. One way to play oil is the tankers. TK operates a fleet of tankers and you can bet business is booming. The stock is near new highs and poised to make more. Shares managed a 2.4% gain today despite Morgan Stanley reiterating their "under weight". Another stock to look at in the tanker industry is Knightsbridge (VLCCF). --- Rogers Corp - ROG - close: 65.74 change: +0.70 WHAT TO WATCH: Shares of ROG have been consistently marching higher since its big rally in early October 2003. The stock has been such a steady performer that investors have been using dips to the 40 or 50-dma as an entry point to load up again. ROG is once again near its 40-dma. Bulls can look for a rebound higher and target the recent highs or the top of the channel. Bears can watch for a breakdown through the 50-dma and/or the $62.00 region (watch out for potential support at $60.00). ================== Trading Ideas ================== This section contains stocks that meet criteria which may make them of interest to long and short side traders. These are not recommendations, nor have they been reviewed by PremierInvestor editors for investment potential. However, each of them has technical and fundamental characteristics that make them worthy of further review by traders and investors looking for fresh ideas. New stocks will appear daily following the market close. Value Plays With Bullish Signals --------------------------------- Ticker Company Name Close Change SI Siemens Aktien 70.50 +0.79 PTR Petrochina Co Ltd (ADS) 48.22 +1.04 TOT Total Sa (ADS) 98.00 +0.85 RD Royal Dutch Petrol 52.13 +0.52 FNM Fannie Mae 71.69 +1.18 BAC Bank of America Corp 84.23 +0.57 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- DPTR Delta Petroleum Corp 15.00 +1.05 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- SYK Stryker Corp 57.33 +1.17 LMT Lockheed Martin Corp 53.04 +1.24 BF BASF Ag (ADS) 54.56 +1.31 NEM Newmont Mining Corp 41.12 +1.73 BMET Biomet Inc 48.90 +2.15 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- MER Merrill Lynch & Co 51.11 -1.41 GCI Gannett Co Inc 81.10 -1.85 OMC Omnicom Group Inc 69.85 -3.05 PGN Progress Energy 43.15 -1.05 SSP E. W. Scripps Company 103.91 -1.53 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- MMC Marsh & Mclennan Cos Inc 44.45 -0.51 MRO Marathon Oil Group 37.09 -0.74 BSC Bear Stearns Companies 83.55 -0.93 AMLN Amylin Pharmaceuticals 22.25 -0.39 CSL Carlisle Companies Inc 60.26 -0.53 ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright 2004 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Wednesday 07-07-2004 section 2 of 2 Copyright (c) 2004, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= In section two: Stop Loss Adjustments: BORL, IMOS, SOHU Net Bulls (Tech Stocks) New Bearish Plays: ASKJ Active Trader (Non-tech Stocks) New Bullish plays: SWC High Risk/Reward New Bullish plays: TWTC ================================================================== Stop Loss Adjustments ================================================================== BORL - tech short play - Lower stop from $8.11 to $8.01 --- IMOS - high risk/reward short - We are TRIGGERED at $6.50 on today's 8.57% decline. Lower stop from $8.50 to $8.00. --- SOHU - high risk/reward short - We have achieved our TARGET in the $16.00 region with today's intraday drop to $15.59. We're going to set an OFFICIAL exit price at $15.25 on the expectation that YHOO's disappointment will keep the pressure on Internet stocks. If SOHU trades at or below $15.25 we'll exit. In the mean time we're going to try and protect a large chunk of SOHU's decline by lowering our stop loss from $18.41 to $17.11 (just over today's high). ================================================================== Net Bulls (NB) Tech Stock section ================================================================== --------- New Plays --------- New Bearish Plays ----------------- Ask Jeeves - ASKJ - close: 34.42 change: -1.04 stop: 35.01 Company Description: Ask Jeeves, Inc. provides consumers and advertisers with information retrieval products across a diverse portfolio of Web sites, portals and desktop search applications. Ask Jeeves' search and search-based portal brands include: Ask Jeeves (Ask.com and Ask.co.uk); Ask Jeeves for Kids (AJKids.com); Excite (excite.com); iWon (iwon.com); My Search (mysearch.com); My Way (myway.com); My Web Search (mywebsearch.com) and Teoma (teoma.com). Ask Jeeves also owns the search technology Teoma, proprietary natural language processing technology, as well as portal and ad serving technologies. In addition to powering several of the Ask Jeeves brands, the Company syndicates its technologies to help companies increase revenue through powerful search. Ask Jeeves' advertising services, which includes Ask Jeeves, The Excite Network, and MaxOnline, provides advertisers with targeted tools to reach a broad base of highly valuable customers. Ask Jeeves, Inc. is headquartered in Emeryville, California, with offices throughout the United States, as well as in London, Dublin, and Tokyo. (source: company press release) Why We Like It: A little late to the party? Maybe, but we can still have a good time! We're adding ASKJ to the play list now that we no longer need to worry about YHOO's earnings as a potential hazard. In reality YHOO's earnings are just the sort of catalyst bears are happy to have. This morning the entire Internet sector was downgraded by Prudential to "neutral". The Chinese Internets continued their wave lower on a revenue warning from NTES while YHOO's pre-earnings jitters weighed on AMZN and EBAY. Yes, it was a bad day all around for Internet stocks. Expectations for YHOO's after market earnings report were pretty high so it's no surprise that they disappointed and it's no surprise that the stock and the rest of the Internets are trading lower on the news. Yes, YHOO met the 8-cent estimate but just barely missed the revenue number and guided somewhat lower for their Q3 revenues. Traders reacted in the usual fashion and sent YHOO careening lower in after hours trading. We expected ASKJ to open lower tomorrow as well. A move under the simple 100-dma is what we're looking for to produce a technical breakdown and pave the way for a move toward its 200- dma near $27.50. Here's the plan. We expect ASKJ to open in the $33.00-$32.00 range. If it does, then we'll initiate the short with a stop loss at $35.01. If ASKJ opens below $32.00 then step back - we will NOT open the play. Short-term traders can target $30.00. We're going to target the $27.50. Long-term traders can target the bearish P&F target at $22.00. Earnings are expected on July 28th. We do not plan to hold over the report. Remember - Look for ASKJ to open between $33-32. Only then will we initiate the play. !Alert! ASKJ is liable to be volatile and thus carries a higher degree of risk. Use caution. Annotated Chart: Picked on July 07 at $00.00 <-- see TRIGGER Gain since picked: - 0.00 Earnings Date 07/28/04 (confirmed) Average Daily Volume: 3.9 million ================================================================== Active Trader (AT) Non-Tech Stock section ================================================================== --------- New Plays --------- New Bullish Plays ----------------- Stillwater Mining Co - SWC - close: 16.05 chg: +0.79 stop: 14.95 Company Description: Stillwater Mining Company is the only U.S. producer of palladium and platinum and is the largest primary producer of platinum group metals outside of South Africa. (source: company press release) Why We Like It: We decided to look through the gold, silver and mining stocks after seeing the 4% rally in the XAU gold & silver index on Wednesday. A number of mining stocks have been doing well as demand rises for their products with the improving global economy. Gold and precious metal stocks are doing well as investors look for "safe haven" plays during stock market weakness. We like SWC for its push through the $16.00 level and its very bullish P&F chart. The P&F chart has produced an ascending triple-top breakout buy signal that points to a $32 target. Our target is a bit closer at $18.00. We plan to protect ourselves with a stop loss at $14.95. More conservative traders may want to use a trigger over today's high at $16.25. We're happy to consider positions at current levels. Earnings are estimated on or about July 30th but that's unconfirmed. There are several other mining stocks that drew our attention and look like decent bullish candidates. Check them out: NEM, STLD, and PAAS. Annotated Chart: Picked on July 07 at $16.05 Gain since picked: + 0.00 Earnings Date 07/30/04 (unconfirmed) Average Daily Volume: 630 thousand ================================================================== High Risk/Reward (HR) Stock section ================================================================== --------- New Plays --------- New Bullish Plays ----------------- Time Warner Telecom - TWTC - close: 4.63 change: +0.56 stop: 4.29 Company Description: Time Warner Telecom Inc., headquartered in Littleton, Colo., is a leading provider of managed network solutions to a wide array of businesses and organizations in 44 U.S. metropolitan areas that require telecommunications intensive services. One of the country's premier competitive telecom carriers, Time Warner Telecom integrates data, dedicated Internet access, and local and long distance voice services for long distance carriers, wireless communications companies, incumbent local exchange carriers, and such enterprise organizations as healthcare, finance, higher education, manufacturing, hospitality, state and local government, and military. (source: company press release) Why We Like It: We admit that this is pure speculation. Normally we would not chase a 13.75% move, especially in a stock like TWTC. However, after two months of consolidating sideways off its lows the stock has finally pushed through technical resistance at its 40-dma and the 50-dma in the last couple of weeks. Now TWTC has climbed through resistance in the $4.40-4.50 range on volume 60% above average. We suspect that TWTC could have enough momentum to reach its simple 100-dma near $5.38. We're going to target a run to $5.30-5.35 and use an initial stop loss at $4.29. Earnings are due on July 27th. Use high-risk capital only! FYI: Don't be surprised to see TWTC trade back toward the $4.50 level tomorrow. It could be used as an entry point. Annotated Chart: Picked on July 07 at $ 4.63 Gain since picked: + 0.00 Earnings Date 07/27/04 (confirmed) Average Daily Volume: 985 thousand ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright (c) 2004 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
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